America has a savings problem and it must be solved
In an age of relative uncertainty and market instability, the concept of saving money has never been as relevant and important as it is now. Barely eight years ago the world witnessed one of the largest financial disasters since the Great Depression in the 1930s. Still reeling from the effects, the economic situation of the United States, while relatively fair compared to Western European nations, is still fragile. Many economists have come to the conclusion that there exists a statistical probability, though low for that matter, that the United States could suffer another economic shock in the next decade or two.
Drawing upon the experiences and insights from the 2008 financial crisis, a number of people have begun to recognize the utility in saving money for contingency purposes. By saving money, individuals are in a better position to weather the storm, so to speak, which means that they are more likely to remain financially solvent in the event that they lose their job and can’t earn a steady income. This is the difference between being able to purchase groceries for yourself or for you family and having to go hungry. Maybe it is the difference between not filing for debt because of one’s inability to pay for outstanding credit lines and completely defaulting on your finances.
Let’s even take it out of the context of a potential financial meltdown. Let’s create a hypothetical situation where there is no chance of an economic catastrophe in the nearby future. In this case, saving money could still prove fruitful given that extra money allows more financial flexibility in a wide range of areas. For example, an individual who has all of his financial needs met has the ability to invest this extra money in properties or stocks, thus generating an additional amount of income. Alternatively, this individual could also use the additional savings to indulge his or her’s self and take a rich vacation, one that may not have been previously attainable before such money was saved.
You see, saving money isn’t just about making your account numbers grow, rather, it is about saving for the future. The problem is, not many people realize just how important this practice is, the practice of saving money. As a matter of fact, there is a sizeable portion of the population that does not even have a savings account or any residual funds set aside for such purposes. Based on a survey conducted by the website GoBankingRates.com, a large number of Americans, 62 percent of them as a matter of fact, have less than $1,000 in their savings accounts. In addition, around 21 percent of Americans have not even opened or invested their income into savings accounts, thus illustrating just how dire the situation is for the average American in the event of a financial emergency.
While this seems relatively somber, there is an upside to this scenario when unpacking the data itself. For example, when we break down the number of savings that individuals hold based on age, we find that Millennials, the youngest age group of them all, save money at a higher rate than any other generation. Another survey compiled by GoBankingRates.com shows that when it comes to saving 6% to 10% of their incomes, based on defined age groups, millennials save the most. In addition, the more vulnerable income bracket, the $30,000 to $50,000 range, actually save more money than the income groups above it. While there are some obvious explanatory factors for this, it is nonetheless important because it shows that while the situation is relatively poor, in regards to the average household savings nationwide, there is a shifting trend in the groups that typically are considered to be the least capable and financially savvy.
However, while this may be the case, the reality is quite disparate due to the fact that a large segment of Americans are still avoiding saving portions of their income for a variety of reasons, most notably the low-interest rates that have been put in place by the federal reserve and other banks for a considerable number of years. Low-interest rates have ultimately caused many people to not have the will to invest because of the lack of incentives associated with long-term savings.
The philosophical question, though, would be to what extent do we allow poor macroeconomic situations affect our will to save? By allowing ourselves to feel discouraged by low-interest rates, for example, we are most definitely setting ourselves up for potential long-term failure. Perhaps we need to understand that the economic reality we millennials, in addition to other age groups, live in is more nuanced and complex than that of previous generations. Instead of succumbing to economic pressures that will inevitably be part of the long-term trend, we should instead adapt to this new economic environment as it will require time to normalize.
The logical answer to this situation would be to save, but herein lies a major problem that exposes the fragility and inherent weakness to the mind of humans in general. Humans, especially in a time where there is an abundance of luxury goods and nonessentials, always strive to attain something that they don’t have. Or, often times, they seek to follow the latest trends even if they aren’t financially capable of doing so, solely out of materialistic motivations. There are plenty of times where I decided to buy electronics or clothes that I knew I did not have much care for, yet, I still purchased them at the detriment of possible savings.
In my personal opinion, there needs to be a transformation in the way that we view and understand the concept of saving. This is not something that can simply be completed over night, however. This dramatic change in thought will have to be gradual and supported through different means, possibly from the government, i.e. from the top down. Saving hasn’t been an integral component of our long-term culture, but maybe it is high time that it should. It is within the government’s interest to promote this given that in the event of another 2008 recession, the people who don’t have the necessary contingency funds will inevitably come to the government for monetary assistance thus compounding the strain on the nation’s overall finances. Realistically, this is not a scenario the government wants to find itself in, given that it has its own savings problems to account for.